Child Care Vouchers
Salary Sacrifice, no matter how it’s described, is a contractual change or contractual variation. If an employer implies that it’s not, then it fails the conditions required for a Salary Sacrifice scheme – therefore making any tax and/or National Insurance Contributions (NICs) savings that are being applied illegal.
Well, when Statutory Maternity Pay (SMP) is received, the earnings related payment will have been reduced to reflect the lower contractual earnings. When an employee purchases Child Care Vouchers themselves, there is no entitlement to refund or relied of tax or NICs – it’s bought from their Net Pay.
However, if you give your employees childcare vouchers, the first £55 a week is free from both tax and NICs if the qualifying conditions are met. Any associated childcare voucher administration costs you pay are also exempt.
Often employers do not want to have the cost, so they use a legitimate Tax Avoidance measure, Salary Sacrifice, to make a linked arrangement. The employee agrees to a pay cut (typically £55 per week) and the employer agrees to provide free of charge to the employee, the benefit of Child Care Vouchers (to the value of £55 per week).
The Pay cut of £55 means that the employee reduces their tax liability on their cash pay by £11 (based on 20%) and their NICs liability by £6.05. So the net result is that the employee is £17.05 better off. Equally the employer saves the NIC element of the £55, so they are £7.04 better off (although be warned, many Childcare Vouchers schemes scam much of this amount in fees).
The provision of Child Care Vouchers by the employer is a non-cash benefit in kind, whether given free on top of normal pay or as part of a Salary Sacrifice arrangement. To meet anti-discrimination law requirements, employees who go on maternity leave are entitled by legal right to continue to receive all of their non-cash benefits in kind, including Child Care Vouchers. If they are not provided then the employer is potentially committing an act of discrimination and the employee is entitled to take the employer through due legal process.
A couple of additional facts in relation to maternity leave need to be understood:
- SMP is a statutory payment and not contractual pay
- Salary Sacrifice is only operational against contractual pay – including Occupational Maternity Payments.
No, because there is nothing to pay back, the provision of the child care vouchers is a non-cash benefit in kind.
In this case of maternity, NO, the employee has a legal right to continue to receive all non-cash benefits through their 52 week maternity leave.
Yes they can, but if that is the case there will have been no reduction in Tax or NICs for the employee and no reduction in NICs for the employer either as it is not an employer provided scheme.